The Burden of Proof

At least with the tax cuts, there’s little risk that the money will, from the taxpayer’s standpoint, be wasted. It may not create much in the way of stimulus, but it’s essentially a neutral act–give them money now, take it later. Cash transfers, too, offer relatively few of those frictions; there’s some deadweight loss, but whatever those on unemployment or welfare buy, they presumably valued more highly than alternative uses for the money. Government spending, on the other hand, comes with no guarantee that whatever it buys will be worth as much to the polity as the alternative uses for the money. Hell, badly done government projects can actively destroy value–go up to Buffalo and look at the empty, useless subway that killed Main Street, for example.

Given that, it seems to me that the burden of proof ought naturally to be on the stimulus proponents to satisfy the public that their highly theoretical models are basically sound, especially for the parts of the bill that aren’t tax cuts or transfer payments. Let’s recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)–the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.

Proponents say that that’s because there wasn’t enough stimulus, which is possibly true, but not really satisfying, because first, how do we know this package is enough, and second, that leaves us with a belief in the virtues of stimulus that is essentially non-falsifiable. We might as well move macroeconomic policy to the Office of Faith-Based Initiatives.

via The burden of proof – Megan McArdle.

Megan is in fine form. So are some of her commenters:

There’s no way that 535 preening politicians know better than three-hundred million how to spend a trillion dollars of “stimulus”. The power to “create” jobs is in everyone’s hands, why delegate it to the people least familiar with the basics of getting through tough times.


I think it is crystal clear that most of those arguing for massive government spending for “stimulus” would like the permanant transfer of a large percent of the nations wealth to the pubic sector as a matter of political philosophy. Stimulus is just an excuse.

Not all the commenters agree with Megan. It is pretty clear that the reaction to the stimulus package is closely tied to political leanings and what brand of economics you subscribe to.


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